The City of Philadelphia has announced a series of tax policy changes that could significantly affect both businesses and individual taxpayers beginning with the 2025 tax year. These updates include the elimination of long-standing exemptions, adjustments to tax rates, and phased reductions in various city taxes. It is important for taxpayers to understand how these changes may impact their financial responsibilities and to take proactive steps in preparing for compliance.

FOR BUSINESSES

Business Income and Receipts Tax (“BIRT”)

• $100,000 Exemption Eliminated:
  Starting with 2025 returns (filed in 2026), the $100,000 exemption for gross receipts is eliminated. All businesses operating in Philadelphia must now file and pay BIRT annually, including small businesses with under $100,000 of gross receipts who may have previously been exempt from paying this tax.
• 2025 Rate Adjustments:
  • Gross Receipts portion of BIRT: Reduced from 1.415 mills to 1.410 mills.  There is a planned phaseout for this tax.
  • Net Income portion of BIRT: Reduced from 5.81% to 5.71%.

Net Profits Tax

• 2025 Rate Adjustments:
  • Residents: Reduced from 3.75% to 3.74%
  • Non-residents: Reduced from 3.44% to 3.43%

Use and Occupancy (U&O) Tax

• The $2,000 annual exemption ends January 1, 2026.
• All taxpayers using or occupying Philadelphia property for business must pay full U&O tax starting in 2026.

FOR INDIVIDUALS

Wage and Earnings Tax

• Effective July 1, 2025:
  • Residents: Reduced from 3.75% to 3.74%
  • Non-residents: Reduced from 3.44% to 3.43%
  • Additional rate cuts planned over the next few years
  • Employers should have reduced payroll withholding as of July 1

School Income Tax

• Reduced from 3.75% to 3.74% for the 2025 tax year.
• Applies to unearned income of Philadelphia residents (e.g., dividends, rental income).

Real Estate Transfer Tax

• Increased from 3.278% to 3.578% on all real estate sales within Philadelphia.

Evaluate Your Financial Strategies

With these tax changes set to roll out over the next several years, both businesses and individuals in Philadelphia should evaluate their financial strategies and filing requirements. From the elimination of exemptions to gradual rate adjustments, staying informed and working with a qualified tax advisor—such as those at Isdaner & Company—can help ensure a smooth transition and proper planning. Taking early action will help minimize surprises and maximize tax efficiency moving forward.